Health Savings Account (HSA) vs. Health Insurance

By Compuquotes Team on May 1st, 2008

In order for many people to receive vital health care, they will either need a health insurance policy or a health insurance savings account. Many people become confused between the two and often believe that a health savings account is the same thing as a health insurance policy. Typically, a health insurance policy is a form of insurance that helps you pay for medical expenses ranging from preventative medical check ups to treatment for illnesses and emergency care. A health insurance savings plan (HSA) is not health insurance but a tax-advantaged medical savings account used by American tax payers who are enrolled in a High Deductible Health Plan (HDHP).

Health insurance can be provided through an employer, through a private insurance company, or through a government sponsored social insurance program like Medicare or Medicaid. Health insurance may be purchased on an individual and family basis or on a group basis, typically by employers to cover their staff. With health insurance, the covered party pays a premium, and sometimes taxes, to help protect them financially should they become ill or experience unexpected health emergencies. With health savings accounts, account owners make deposits into an account that is not subject to federal income tax at the time of the deposit.

People who own a health savings account may use the funds within that account at anytime for qualifying medical expenses without incurring any federal tax liability. Not all medical expenses are covered, especially those for cosmetic purposes. A health savings account is treated very much like an IRA account in regards to penalties for non-medical withdrawals and when funds are removed from the account. Where health savings accounts are a key component of consumer driven health care, health insurance is quite the opposite since it can be regulated by both companies and the government.

Many health savings account proponents strongly believe that they are an important aspect of healthcare reform in the United States. It is thought that health savings accounts, unlike health insurance, will contribute to reducing the constant increase of health care costs that we are now seeing as well as to help increase the overall efficiency of the current health care system. Health savings accounts also will eventually allow patients to be able to receive require health care without a so-called "gatekeeper" at the insurance company to approve or deny any said medical care request. It is all too often that health insurance companies refuse to cover their clients during necessary medical requests.

A health savings account can also offer much needed flexibility to patients that is otherwise not provided with traditional health insurance plans. Because patients will be able to use the funds within their health savings account without the federal tax liability, paying for dental, orthodontics, visual, and non-prescription medications can and will become easier. Generally, these medical needs are not met within a health insurance plan at all. Those health insurance companies that do cover such costs require patients to add "riders" on to their existing plans, thus increasing their premiums for these basic medical needs.